Under-realisation loss for FY08 will be 25% less than the earlier estimate.
Crude oil prices, which have fallen by a fifth after touching a peak of $147 per barrel on July 11, is not only likely to provide relief for oil marketing companies but also result in substantial savings in country’s import bill by as much as $20 billion, if the prices stay at the current level.
For the three public sector firms- Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL)- the sharp drop in oil prices would mean corresponding reduction in loss for the petroleum products they sell below the production cost and more cash in hand to smoothly run their day-to-day operations.
At the current price level of US$116.9 per barrel for the Indian basket of crude oil, the under-realization loss for oil marketing companies is pegged at Rs180,000 crore for the financial year ending March 2008, around 25 per cent lower than the estimate when the price of oil nearly touched US$142 per barrel.
Also, the current estimate- assuming that the price of crude remain at the current level till March 2008- is Rs 25,000 crore less than the last estimate by the government on August 1, 2008.
The government-appointed committee, headed by Planning Commission Member B K Chaturvedi to look into the calculation of under-recoveries, has submitted its report, but its content is not made available so far. If the committee suggest an alternate way to calculate the loss and subsequently accepted by the government, the quantum loss for the year could change.
Meanwhile, the three oil marketing companies had a mixed day in the stock exchanges. While IOC and HPCL registered a gain of 1.77 per cent and 2.24 per cent in their share prices, BPCL fell marginally by 0.76 per cent in Wednesday’s trade in Bombay Stock Exchange (BSE).
The lower oil prices have also buoyed the stock markets with the Sensex rising 2.84 per cent since August first as oil prices have dipped 6.83 per cent. The Bombay Stock Exchange’s Oil&Gas Index has risen 1.4 per cent during the period.
“I see oil prices falling by another $10 per barrel at least. But prices will continue to be volatile,” said Sarthak Behuria, Chairman of Indian Oil Corporation, India’s largest oil importer. India imports almost 78 per cent of its crude oil requirement. It imported 121.67 million tonne of crude oil in 2007-08, for which it ran up a bill of $68 billion.
The company imported the oil at an average price of around $78per barrel. Oil refiners were projecting that the bill would rise to nearly $100 billion if oil prices remained at above $135 per barrel. The average prices of the Indian basket so far this financial year is $122 per barrel.
Global crude oil prices have dipped by over 20 per cent from the record high of $147.11 per barrel on July 11. The basket of crude oil that Indian refineries buy has also fallen around 18 per cent to $116.90 per barrel on Tuesday, the latest day for which data are available, from the record of $142.04 per barrel on July 3.
Oil prices have dipped as fuel demand in the US and Europe slows and the Opec, which produces 40 per cent of the world’s oil, increased production by 0.7 per cent, Bloomberg reported. The economy is China, the world’s second-largest oil consumer, grew at the slowest pace since 2005 in the second quarter.
Reports about the tropical storm Edouard not impacting oil production in the Gulf of Mexico also pushed down oil prices.
Hindustan Petroleum Corporation (HPCL), according to a top company official, is expected to better its financial performance in the remaining part of the year because of fall in oil prices.
The country’s third largest marketer of petroleum products reported a loss of Rs 900 crore in the first quarter when average oil price was $118 per barrel.
The over 20 per cent slip in oil prices in the last four weeks, also, is likely to bring down the “under-realisation” on retail sales of the oil marketing companies to below Rs 180,000 crore for the current financial year, said another official with an oil company. It was projected to be at Rs 245,000 crore in the beginning of June, before prices of petrol and diesel were hiked by over 10 per cent.
This means that the liquidity crises of the oil marketing companies – IOC, HPCL and Bharat Petroleum Corporation (BPCL) – would ease. Over the last fortnight the three companies are projected to lose Rs 660 crore per day, 20 per cent lower than the Rs 820 crore they were losing in the previous fortnight.
“If oil prices continue to fall, the daily loss will fall further. With lower oil prices global aviation fuel prices with also dip and we can then reduce jet fuel prices in India,” said another official with IOC.
The finances of the country’s airlines are under pressure as jet fuel prices, which make up around 50 per cent of the total costs of an airline in India, have risen by 56 per cent since January this year.
